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IRS Announces New Audit Campaign Focusing on Partnership Distributions

By Anthony P. Daddino on September 30, 2022
Do you have 10, 20 or even 30 years of data to prove up basis in a partnership interest? Well, I hope so, because the IRS will be asking for it as part of a new IRS Compliance Campaign.

Just last month, on its website the IRS posted a new campaign entitled “Distributions in Excess of Partner’s Basis.” Although few explanatory details are provided, the IRS is clearly targeting unreported gain stemming from partners that do not have adequate outside basis in order to receive tax-free liquidating or non-liquidating distributions.

For avid readers of MC Talks Tax (you’re out there, aren’t you?), in 2017 we blogged about a similar campaign that the IRS implemented with respect to S corporation distributions. Since that time, we’ve had the privilege of participating in some of those examinations, with the IRS demanding that the shareholder prove-up its outside basis from the inception of the S corporation up through the audited tax year. In one extreme example, the IRS requested year-by-year basis adjustments dating back to 1990. I responded that I would first need to dig up the time capsule in which the historical financials were buried. While the examiner was not humored by the joke, it went over famously with the Appeals Officer who later worked with us to resolve the dispute.

For a complete list of the IRS’ active compliance campaigns, click HERE. For those of you worried about recently-filed return positions and looking for reassurance, a complete list of the IRS inactive campaigns is set forth HERE.

If you have any questions about this Blog post or any other IRS or tax-related matter, feel free to contact me directly at (214) 749-2464 or adaddino@meadowscollier.com.